The Future of Competitive Strategy

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Introduction

©2022 MIT. This excerpt is from The Future of Competitive Strategy by Mohan Subramaniam, published by The MIT Press.

value chain capabilities of producing and selling cars take a back seat. Ford needs to attract new customers who participate on its platforms by providing sensor data. This will require Ford to change its prevail- ing marketing tactic, which specialized in attracting customers to buy Ford cars. Ford must reckon with the fact that its new digital rivals may give away their platform services for free, to attract platform users and acquire their data. Ford’s prevailing business models are not set up to do any of these things. Digital titans commonly give away many platform services without charging for them because they understand the role and importance of network effects. 18 Their platforms become more attractive as more customers participate. Network effects are a hallmark of the new digi- tal world, though they were noticed in the old industrial world too. For instance, typewriters with the QWERTY keyboard format benefited when a growing network of QWERTY users locked out alternative key- board formats. 19 Such benefits, however, were relevant only to a few products and were observed just in select industries, termed “network industries.” 20 Today, as legacy products become sensor-equipped and generate interactive data just as many digital platforms do, network effects are becoming far more pervasive and a crucial source of advan- tage across a wide spectrum of businesses. To operationalize its digital strategy, Ford too must build such network effects through its plat- forms. Network effect advantages grow exponentially, and the result is often a winner-take-all competitive scenario. 21 If Ford is successful, these network effects will eventually establish more formidable barriers to entry for new rivals with competing data-driven ride services than the sort of barriers Ford’s prevailing manufacturing scale of operations posed. Table 0.3 summarizes these ideas. Charting a Path Forward in the New Digital World As firms shift their emphasis from products to data, they will face challenges similar to those Ford is facing. They will need to find fresh approaches to compete in the digital ecosystems emerging around them. The rise of digital ecosystems does not mean, however, that